Asian economies keep faith in capital imports

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Theory has it that a sound way of measuring how well an economy is adjusting to a period of recession is to break down its imports by consumer goods, capital goods and intermediate goods.

What one should see as recession bites is a pronounced decline in imports of consumer goods as people tighten their belts. At the same time, there is likely to be a temporary decline in imports of raw materials and intermediate products as cash-strapped industrialists run down inventories and try to find cheaper substitutes at home.

Capital-goods imports may also decline but they hold the key to recovery. Investment in industry and the export growth which results from it are needed to get an economy moving again. This import component should rise before the others.

So much for the theory. The difficulty with applying this measure in Asia is that the mainland and Singapore do not publish the breakdown, Taiwan is not in recession and South Korea and Hong Kong cloud the picture with re-exports.

In Hong Kong, for instance, re-exports of consumer goods exceed imports, which is a nonsense that can only be explained by importers slapping a huge mark-up on imported goods they then send to the mainland. Without knowing how big this mark-up is, there is no knowing how much is retained in the SAR.

This leaves Indonesia, Malaysia, the Philippines and Thailand, and here the figures show some interesting things.

The first is that, yes indeed, consumer-goods imports are declining quickly. Latest figures show them down 30 per cent year on year on a six-month average basis.

But this is roughly in line with the overall trend in imports. Their proportion of the total has fallen very little. It is a decline that has been in progress for more than three years rather than since July last year alone and consumer goods do not amount to much in these countries in any case. They constitute little more than 10 per cent of imports. The equivalent figure in the United States is 30 per cent.

The more interesting trend is that imports of raw materials and intermediate goods have declined in the past 10 years from 63 per cent of imports to 47 per cent.

Over the same period, imports of capital goods have risen from 27 per cent to 41 per cent of the total. Both trends are intact despite the economic troubles of the past year.

What this suggests is that these countries are steadily upgrading their industrial base and that the turmoil has not yet deterred them from doing so. Rather than importing the materials their plants require, they have invested in new plant capacity to produce these materials or at least to bring them in at an earlier stage of manufacture.

This runs counter to the common perception that they wasted all their money over the past few years on high-priced consumer imports and fancy office buildings with no tenants. Undoubtedly, a great deal of such wastage did occur and one must remember that, although capital goods have risen as a percentage of imports, those imports have dropped precipitously.

But somewhere out there, people are still plugging away at investing sensibly.